An income strategy approach to the positive theory of accounting standard setting/choice

This paper is designed to provide additional evidence on the positive theory of accounting policy choice by combining individual accounting principles into firm income strategies. These strategies were the dependent variable in a probit analysis where the independent variables were size, management...

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Bibliographic Details
Published in:Journal of accounting & economics 1981-08, Vol.3 (2), p.129-149
Main Authors: Zmijewski, Mark E., Hagerman, Robert L.
Format: Article
Language:English
Subjects:
Accounting changes
Accounting policies
Accounting standards
Accounting theory
Choices
Strategy
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Summary:This paper is designed to provide additional evidence on the positive theory of accounting policy choice by combining individual accounting principles into firm income strategies. These strategies were the dependent variable in a probit analysis where the independent variables were size, management compensation, industry concentration ratio, systematic risk, capital intensity and the total debt to total asset ratio. The results indicate that four of these factors (size, management compensation, concentration ratio, and the total debt to total asset ratio) have a significant association with the choice of a firm's income strategy. This test provides strong evidence consistent with the positive theory of accounting standard setting/choice. We also present evidence that smaller firms and/or firms in less concentrated industries do not appear to make accounting policy choice decisions that are consistent with this theory.
ISSN:0165-4101
1879-1980
DOI:10.1016/0165-4101(81)90010-0